An increase in total factor productivity causes the
A)production function to shift up, labour demand to shift right, and output supply to shift right.
B)production function to shift down, labour demand to shift left, and output supply to shift left.
C)production function to shift down, labour demand to shift right, and output supply to shift right.
D)production function to shift up, labour demand to shift right, and output supply to shift left.
E)production function to shift up, labour demand to shift left, and output supply to shift right.

Question

Quizplus · Accepted Answer

An increase in total factor productivity means more output can be produced with the same amount of inputs (like labor and capital). This means that the production function will shift up, reflecting the increased output that can be produced. As a result, labor demand will shift right because firms will need more labor to produce the increased output. Finally, output supply will also shift right because firms are able to produce more output at any given price level.

An Increase in Total Factor Productivity Causes the